KCGI, as the managing partner, announced on the 30th that KCGI Korea Governance Improvement No. 2 Private Equity Partnership acquired a 7.05% stake in DB HiTek through its investment vehicle, Caropy Holdings LLC.
The reason KCGI decided to invest in DB HiTek is that it judged the company to be undervalued relative to its competitiveness. DB HiTek has maintained an excellent market position in the global foundry market for several years based on its specialized process technology in the analog semiconductor field. Additionally, it has demonstrated an impressive average annual growth rate of about 26% over the past four years and outstanding profitability with an operating margin of approximately 46% in 2022. KCGI stated, "DB HiTek's corporate value is extremely undervalued (PER about 3.5x1, EV/EBITDA about 1.3x1) compared to its competitiveness based on future growth potential and excellent market position."
DB HiTek announced its goal to increase its corporate value to around KRW 6 trillion through a physical division, with KRW 4 trillion for the foundry and KRW 2 trillion for the fabless business. KCGI welcomed the management's proactive will to enhance corporate value, saying, "However, it is very regrettable that there were significant conflicts and friction with minority shareholders due to a lack of communication with shareholders and the market during the process of pursuing the physical division, and that the intentions behind the division and suspicions regarding dual listing have been met with skepticism."
Furthermore, KCGI emphasized, "Corporate division is not an urgent matter, so it should have been decided through a process of sufficient consultation and persuasion over time, followed by a vote at the shareholders' meeting involving only general shareholders excluding controlling shareholders (Majority Of Minority, MoM). At least for matters where general shareholders could suffer significant damage, such as corporate division, mergers, delisting, and subsidiary listings, the implementation of MoM through amendments to the articles of incorporation should be ensured."
KCGI: "Share Buybacks Must Include Cancellation"
KCGI praised the company's efforts for shareholder returns, including plans to expand dividends and a KRW 100 billion share buyback program. However, it firmly stated that share buybacks should not be used for other purposes such as securing friendly stakes. It mentioned that share buybacks only translate into shareholder value when accompanied by cancellation.
KCGI said, "If recent controversies related to the physical division and share buybacks are temporary measures to circumvent holding company activity restrictions under the Fair Trade Act, this is a very short-sighted corporate governance reform, and we intend to correct this. DB Inc. should expand its holding company's stake through legitimate means such as share buybacks and cancellations, additional share purchases using its own funds, or stock exchanges approved by shareholders' meetings, turning the holding company transition into an opportunity for sustainable growth."
Demand for Checks and Balances through an Independent Board of Directors
KCGI stated that it plans to implement checks and monitoring to prevent decision-making solely for controlling shareholders by appointing independent outside directors and audit committee members nominated by general shareholders, establishing a compensation committee composed entirely of outside directors to rationally determine executive compensation based on authority and responsibility, and separating the roles of the board chair and CEO through an independent board structure. To this end, it proposed the introduction of a cumulative voting system, a reasonable mechanism for the proper exercise of shareholder rights.
KCGI said, "We will communicate and cooperate openly with management, controlling shareholders, and general shareholders to establish proper governance and enhance corporate value. If there are decisions contrary to shareholder value enhancement, we intend to work with management to correct them." It added, "If DB HiTek's management takes the lead in protecting investors' shareholder rights and improving governance, we can become partners and friendly forces of the management, and through this, we hope that DB HiTek Co., Ltd. will become a model case of advanced corporate governance."
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